Animal Spirits Podcast - The Historic Surge in Unemployment (EP.133)

Episode Date: March 27, 2020

On this new episode we discuss the awful unemployment numbers, the new fiscal stimulus bill, restaurants in trouble, other businesses impacted, what happens if you buy too early, the best books on market panics, timing the bottom and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions, and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. We're taping this, I guess, a half hour or so after the initial jobless claims came out. We've been preparing ourselves for awful economic data for a few weeks now. And it's still shocking to me to see these numbers. So filings for U.S. unemployment benefits last week climbed to nearly 3.3 million people. And when you look at this on a chart, it doesn't look real. the highest that it's ever been before, I guess, is in 1982, and it was 695,000 people. This is just crazy.

And if anything, don't you think these numbers are understated? Renaissance macro research tweeted, the claims number was bad as widely anticipated, but this will either get revised up or we will see another large increase next week. So California, for instance, reported just 186,000 in the latest week. Can I say just? I mean, obviously it's a giant number. of itself. I mean, in terms of there's so many people now who are not working because of this and haven't filed for unemployment or they're going down to part-time and not working as much.

So I think in terms of being underreported, it's even worse than it sounds from the numbers and the numbers sound bad. Well, let me just finish, please. California reported 186,000, but the governor said that it was really closer to one million. So yes, this is probably way understated, which is unfathomable. What's also interesting about this report is that immediately upon the release, the market spiked a little bit. And right now, the market is opening at the highs. The market is up almost 2%. And for most people who see these numbers, like my friends, for instance, texting me, how is the Dow positive? Of course, this is the hard thing about investing. I've said this a million times. When you're betting on anything, basketball, any sports betting,

you have the odds. You see the implied expectations, or not implied, really explicit expectations. With the market, you only find out what was baked in after the fact. And I don't know if the market is rallying because it expected 7 million unemployed people or if it's a combination of maybe it was a little bit better than the worst case, combined with the stimulus plan being passed, it's hard to assign percentages. Like, oh, the market is up 2%. 20% of it is the jobless claims being better than expected. 80% is a stimulus bill. We just, we can't untangle all these things. Using the market as a gauge to figure out what's going on right now is not going to be helpful. But can I say one thing? I'm probably not alone on this. What's going on right now in

people's jobs in our life is so much bigger than the market. And yet, when the market finishes down 9%, I feel despondent. And when the market goes up 5%, I feel hope, even though one thing has absolutely nothing to do. Like, the stock market is not the truth. It's not real life. When it's down 10%, you get knots in your stomach. It's like going to the black check table and trying to avoid those feelings of emotional we've talked about. I wrote a little bit about Jason Zwegg's your money and your brain book, which was published in 2007, but it's still more important than ever today. He talked about there's studies that show that the part of your brain that response to financial loss can actually make you have nightmares in your sleep about financial

losses. It's the same part of your brain that deals with danger. And I've had a few restless nights and most of them have come when the stock market has been down 8, 9, 10%. And it doesn't make any sense that that should be the gauge, but somehow it is. But we've talked about this. You know what's in the bear market? What's that? Along with stocks, I'm pretty happy to see nobody's trotting at Warren Buffett quotes. I used one last week. I said this. market has forced me to do it. But yes, you're right. I think we've exhausted that. And maybe it's just because he hasn't come out with his op-ed yet or his big bazooka purchase yet, which seems like it's got to be happening. I can't believe that. Do you think we can retire forever, forever, be greedy

when others are fearful when others are fearful, which is one of your sayings. But the stuff with the stock market is so, it hurts your head to think about because it's so much about expectations and you're trying to figure out what's priced in and no one knows. Honestly, the range of outcomes, I heard the good description is it's a cone right now. The further out you go, the harder it is to predict. But there's nothing that would surprise me at this point. Like, markets could have bottomed the other day on a huge 10% rally or whatever. And they shouldn't have, based on market history, but based on market history, we shouldn't have had a global pandemic that took stocks down 30% in 22 days. On the other hand, we could get down to 50% total

losses, and that wouldn't shock me either. Nothing is off the table at this point. Yeah, this puts your head in a pretzel because I'm using air quotes, everybody knows that we have to have a retest. We didn't have a retest. December 26th, or 24th, 2018, now the market was only down 20%, but we were up 5% and that was the bottom. That was it. There was no retest. It was just back to all time highs. Now, I said the other day, anyone who's certain right now is just delusional or lying and maybe a little bit of both because how can you be certain about anything right now about how this will play out. How about this? How about this? I am open for anything, but I would be way more shocked. I would be absolutely shocked if the market

hits an all-time high this year. Yeah, that would be, that would be surprising. We said that after the 2018 thing had happened, and that was surprising. Yeah, that would surprise them. So stocks are down now, what, 27 percent or so? And that's from the highs. You know what? So Kobe just came into my office And this might sound harsh, but I think most parents would agree that the two best times of the day with little kids are in the morning when they wake up, when they're so sweet, and they come and give you kisses. And at night when you put them down. And then there's the middle part. I've had a few client calls interrupted by kids this week. And luckily, everyone is just used to it at this point.

And it's part of life now, I guess, for the foreseeable future. So we woke up this morning, and my wife likes to watch the Today Show when she wakes up, and Jerome Powell was on the Today Show today. And I'm like, what is... You know, it's funny? Robin's a Good Morning America fan. Is there anything worse than morning shows? Oh, yeah, I can't stand them usually. But Powell was on this morning being interviewed by Savannah Guthrie, and he was really good. I mean, he could almost be a politician, I feel like. Some of his answers were just, he's on point. He is just, he's really good on this. And she asked him about the recovery. And he's saying, listen, we hope the economy was strong going into this.

We hope when we come out of this, we're going to see this vicious snapback rally in recovery. And she tried to get him to promise that. And he's like, listen, I don't know. I really don't know. I hope so, but I don't know. And that's a good place to be right now. It's just, I really don't know what's going to happen. So our listener asked us about the best books about financial panic. So I was scrolling through some of the books that I've read. And one of them is the Great Crash 1929 by John Kenneth Galbraith. Did you read this? I think you and our soulmates. I was looking through that last night because I'm writing something on the Great Depression, some of the similarities and differences about the period. So I was actually looking through my copy of that

last night. I love you, Ben. You got it. So speaking of Powell, so I don't know when this book was written. I believe it was written in the 60s, but I'm not positive. So Goldbreth wrote, the regulation of economic activity is without doubt the most inelegant and unrewarding of public endeavors. Would you say that is so true? And he was not kind to economists and the Fed for that period. It was written in 1954, so nothing has changed. Everybody is an armchair central banker. Yeah. But back then, in the Great Depression, so the Fed was created in 1913. And From there, they didn't know anything, basically. They didn't even know how to manipulate the market.

Right. So he says, I wrote this, he put the Federal Reserve Board in those times was a body of startling incompetence. And during the Great Depression, they were actually trying to balance the budget and they cut spending in the government by 25%. Can you imagine that right now if the government decided, you know what, we're going to shore things up, which is kind of what happened to a lot of the European economies after 2008. We'd have a depression. We'd have a depression if that happened. Yes. And honestly, some of the numbers are still going to look very depressed.

and like, obviously those claims that we had today, the economic data is going to look like that. But the reason that was one of the reasons that was so bad is because the governments and Federal Reserve people at the time were just so incompetent and ignorant about what to do, they made it worse and they doubled down. I shared this quote on a blog post about the best financial panic books. This was John Brooks, who is a great financial historian. He wrote Business Adventures and he wrote The Go Go Years and this is from Once in Golconda. This is so fantastic.

Here's a quote. Probably the best book ever written on a Great Depression. Once in Goldonda? Do you think? Got to be up there. It's one of the best. He wrote, when the crash finally came, it came with a kind of surrealistic slowness so gradually that on the one hand, it was possible to live through a good part of it without

realizing that it was happening. And on the other hand, it was possible to believe that one had experienced. experienced and survived it, when in fact, it had no more than just begun. Unbelievable. The other thing about the Great Depression is, when you read some of these books, they still don't know why it happened, really. Did the stock market crash cause the slowdown in the economy, or did the slowdown in the economy cause a crash? They still really don't know, and I've read so many books on this, and I've still yet to get a definitive answer. Right now, we know what the problem is. And so don't you think that puts us in a better position to handle it,

hopefully, obviously, it could always get worse than expected. And at that point, all bets are off. But the fact that we know what it is, that makes me feel a little bit better about what's happening and that people are behind it. And so it sounds like today they're going to pass the stimulus. They voted in the Senate last night, and I guess the House has to pass it. By the way, it was a unanimous, I think it was 96 votes to zero. Yes, there was some back and forth on some of the details, but they came to an agreement. Is there any precedent of that happening before? I mean, I'm sure there is, but I don't know. Yeah. And honestly, you could quibble with the details. And I'm sure that there are parts of it that people are scratching their heads about. But the fact that we've never really done something like this to this scale, the U.S. economy was $22 trillion last year. This is 10% of the economy right now of GDP that we're pumping back into the system. That's a good thing, even if it's imperfect outcome for a lot of people.

So I made a joke about how this is going to lead to $300 lottes. But don't. you think that, well, we remember that everybody said QE was going to be ridiculously inflationary. Yeah, it didn't happen. Didn't happen. Every time I put a tweet out about this stuff, I said this morning, after 3 million people have filed for unemployment, I said, they might have to do another one of those. In a month, if things continue to get bad, there might have to be another round of stimulus. And someone said, the dollar is going to be worthless and hyperinflation is coming.

The dollar is surging. Yeah, the dollar has gone up because guess what? We have the global reserve currency. and we have really low interest rates. The quote that I saw the other day on Twitter was Powell told Nancy Pelosi, interest rates are low. Go big. And that's the right attitude to have right now. This is when you want to borrow money when you're borrowing it effectively for free when you're talking about real interest rates. So Mnuchin said that most payments will be direct deposits in three weeks. In three weeks. A lot of people come April 1st are going to have a hard time

making pay. Luckily, it sounds like a lot of the banks are working with people. I've heard from a number of people already who have said, I'm going to have trouble paying my mortgage or my rent come April 1st. Hopefully the system takes a little bit of a pause and gives people a break. Well, as part of the stimulus, aren't they putting an extra $600 on top of the regular unemployment money? Yeah, so they're shoring up the unemployment insurance. Again, I don't know how long that takes to get to people either. It's probably a liquidity thing for a lot of people. So our CFO and resident tax expert, Bill Sweet, put together a huge document of this. He was tweeting it last night and going through the stimulus because I guess it was like 880 pages or something. There's a lot. He pulled

out the best stuff. The biggest thing for people is that it's going to be $1,200 per taxpayer plus $500 per child, but it phases out. So if you're single, it phases out at $75,000. For the head of household, it's like 112.5. And if you're a joint household, it's $150,000. That's based on your adjusted gross income. I think there's going to be certain people that probably could use some help that aren't going to get it that maybe made a decent amount of money. Again, you can quibble with those details. And there's probably people who did pretty well the last few years who business fell off a cliff and they need some help that aren't going to get it. Hopefully they're helped out on the small business side of things and some of those other loans. So people are going

to be getting money. Like you said, it just might take a few weeks. They also did a bunch of stuff to retirement contributions. So you don't have to take your required minimum distributions from your retirement accounts this year. They put up to like 12 weeks of job protected six weeks. leave, you don't have to pay taxes until July 15th. So they're doing a good job of almost deferring a lot of stuff. So they're pushing back a lot of stuff. So again, I'm sure that they could have made this much better and more targeted. But for the first shot of ever doing this, I think this is a pretty good start. Let me ask you a question. So as I was thumbing through, what book was this from? This was from, also I think this was from the Great Crash. Or maybe it was the

Great Depression of Diary. Either way, they said how this always seems to follow a pattern. like what happens in the crash and the recovery and those sort of things. And every time there's a war, there's a boom that follows. So even after the Civil War, there was a huge boom that led to an eventual bust. There was a huge boom after World War I. There's a huge boom after World War II. Is it possible that, and the boom usually comes for, I guess, various reasons, people coming back, mobilizing, hungry to go back to work, inflationary pressures, a ton of spending. Is it possible that this is being treated like a war in terms of the fiscal and monetary response and that this will lead to a boom. Right, because the percentage of GDP spending by the government won't be this high before, except for World War II.

So that was like the playbook from the 1800s to basically World War II was you'd have this deflationary bust, followed by war, followed by this inflation where things would get better, and then that boom would bust, and you'd have deflation again, and that was the cycle. and obviously we've gotten out of that because the big war part has gone away. But again, if we get inflation, that in my book is a win here. And that would be the least of my worries at the moment is that we're going to get higher prices. I'm not worried about that. But don't you think that we could in a month be back at the table where they're putting together another stimulus bill and sending more people money? Yeah. It's possible. Again, the market stuff with this is bizarre that the market is up today. And there's going to be a lot of people who don't understand that. And It's bizarre because some days you can say the stock market is the economy. Some days you can say the stock market is not the economy. It almost changes by the day, right? Well, I made a joke yesterday. The economy is up 15% in the last two days. Shocking that I got a lot of responses that the market is not the economy.

Anyway, well, the close 4 o'clock is like three years away, so we'll see what happens over the next few hours. Danny Meyer wrote in a piece in the New York Times with a few other restaurant tours that I've never heard of. Just some stats from that. New York City alone has roughly 26,000 restaurants, and nearly all of them have shut down. And he was talking about the economics of restaurants. And he said that 90% of the money that independent restaurants earn go straight back out to pay employees. And this is true for mom and pop restaurants, and it's true for the fanciest places in town. So he said that 75, without help, 75% of independent restaurants are likely to never reopen.

And here's a quote, this person that they chose Chris Field of Campa Raso in Gilbertsville, Pennsylvania is typical. His farm supplies 40 to 50 restaurants around the city and wholesale to restaurants make up about 70% of our total sales. In the past week, his restaurant sales have dropped to zero. So let me ask you a very ignorant question. Assuming that they're all at zero right now, their sales are at zero, they're not open, why will 75% of them never reopen? What are the economics behind that? Because if they shut down, they're not paying their employees, obviously. Do they shut down because they have to continue to pay their rent and that will bankrupt them? Or they have fixed costs in terms of borrowing to set up the kitchen and that will bankrupt them? Why can't they just freeze and then come back in three months? I mean, a lot of it does depend on what the dominoes are. I didn't even think about the people who are supplying the restaurants with all their stuff that they're obviously hurting too. And then the landlords are probably not getting any money. You saw yesterday, cheesecake factory said they can't.

That's one of the biggest restaurant chains in the country. They can't pay their leases anymore. They're saying that they're not going to be able to pay rent, the cheesecake factory. So that's a big one. That's not even mom and pop. I'm guessing, I don't know. I don't know if the worry is they're going to have a hard time finding people to come back to work for them because they've been laid off. Well, that can't be it.

Well, maybe, I don't know, found jobs elsewhere. That's a good question. I assume a lot of it is just that they just can't financially make it through themselves. and anything that they had is just, it's almost like living paycheck to paycheck, I suppose. I would hope that some of these places will be able to lean on these small business loans to stay afloat. But obviously, if they were living so close to it before that their margins are so thin, they just have no financial backstop at all. The last valuation for Airbnb was $31 billion in 2017. Again, another private company

that was public, what you keep talking about would be down whatever, 90%. more? What about a company like StubHub? So, for instance, I have Nix tickets and I haven't even heard from my, so I email my Nix rep last week like, hello, what's going on? Oh, if you get refunded for those, I didn't think about that. So now, this is so weird because what happens to the people, so I've already sold a bunch of my tickets for the games that didn't happen. So I got paid from Stub. But what happens to the people that bought on Stub, do they get refunded? And what happens to all the people that bought tickets directly from the organization? Like, I bought tickets from the next. Do I get a refund? And then do I have to refund the people on StubUp? How the heck does

that all work? I think there's going to be a bull market and contract attorneys following this because there's no way any of this stuff has ever been thought of before, right, that anyone had these scenarios built in. All of these little things. So I'm talking about Stubb. I mean, there's just one example of countless. This is happening in every single industry. It's just really, really wild. I've seen a few people on Twitter discuss Airbnb that I know someone who owns a few properties and was renting them out and their only tenants were Airbnb people. Guess what? That's gone. Those people's houses. I know California the other day said that they're going to allow a 90-day window the banks are of people not paying their mortgages.

So people are going to have very different opinions and views about risk after what just happened. Maybe. I'm saying people that were burned in this experience. Like, of course, people, people that are eight years old today, they're not going to be scarred. But I'm saying people that got burned today will be much more risk-averse. Yeah, that makes sense. But I get back to the point of there's no way any business or individual in some cases could have ever planned for this. The economy is just, they flip the switch. So maybe, that was my worry about the entrepreneurship thing that people won't want to do it anymore. Maybe that's the case. I get I think it depends how quickly we can turn the lights back on and how quickly we can get rid of

the virus. I think that is going to have a lot to do. If this thing lasts for months and months and months, then I think that's the time where it's just painful and people are continuing getting drubbed. That's going to be tough. If we can get through it. So Bill McBride at Calcoded Risk is one of my favorite economic followers. And he's been talking, he's been putting a lot more of the stuff about the coronavirus into his work. And he said he's got a 40-day plan to start recovery. He went through what that would take about having shelter in place and all these. Is that personally or for the economy? For the economy.

He's saying these are the steps we would need to take to get things back up and running. He's talking about increasing testing, having people take their temperatures. And a lot of the stuff, frankly, sounds like it would be hard to do. So he's saying 40 days, it is possible if the federal government takes action today that we could get back on and possibly open things up. That would be best case scenario. So let's say best case scenario is probably not going to happen. speaking of best case scenario your beard that's best case scenario it's looking very good

what do you think filling in huh are you really keeping it this entire time honestly i've never grown facial hair in my life and i thought you know what we're on quarantine what better time looks fantastic it's a little itchy but yeah it's i've never done it before so why not now right this is my isac newton moment he created calculus i'm growing a beard so so let's say it's not best case scenario and it's 50% worse. And we get some half measures and get pretty good, but not quite there. And we do it more like 60 to 80 days. We talked in the past about how even a 12 or 13 month recession seems great on a spreadsheet, but in real time it's tough. Two or three months of the economy being completely shut off is a long time. And I just can't fathom what that is going

to mean for some places. And maybe that's the worry with some of these businesses and restaurants is that they just, they have no clue. at this point. Yeah. So let's talk about the market a little bit. So you wrote a good piece. What happens if you buy early? And what are some of the findings that you discovered? I looked at, so let's say you had some bad luck and you wanted to buy after stocks have gone down, but you end up buying. And that's what I think anyone with cash right now or savings or wanting to rebalance, we've been getting tons of questions on this. When should I rebalance? When should I put some cash to work? The answer is you're never going to get the perfect time to do it. You're never

going to nail the bottom, but what if you do put your money in early and stocks continue to fall further? So I looked at, first of all, the worst case scenario is a Great Depression, and this is a stat I found last night as I'm writing about the Great Depression. Stocks are down 30% right now. To get to the levels of the Great Depression losses, which were 85%, we'd have to fall 30% from here, then another 30% from there, then another 30% from there, and one more 30% decline from there. We'd have to have four additional 30% declines to get to Great Depression levels. Wow. So 120% declines. Does that math work out? Wait a minute. Carry the Zach Alfenack's gift. Because obviously from your initial base, those losses are

taking away smaller dollar amounts, but the percentages. I'm an optimist. I'm pretty sure that would break me forever. I'm pretty sure if we fall 90% I will be doing some deep, deep soul searching on my views on the stock market. Yeah, that'd be tough. There is an elephant of difference between down 60% even and down 90%. Yes. As horrifying as down 60% sounds, there's nothing. There is no comparing down 60 versus down 90. Yeah.

Down 60 is a flesh wound compared to down 90. How did markets continue? How did they ever stay functioning back then falling that much? That's what still is crazy to me that the Great Depression didn't just completely wipe out the system. Yeah, it didn't wipe out the system, but it did wipe out investors. One of the reasons is only 1% of the country invested in stocks back then. Now it's 50%. So back then, there wasn't the infrastructure that there is today.

So the stock market didn't really even matter that much. I think this is also John Brooks book. This is maybe the Go-Go years because he was talking about how like what happened to the run-up of the Go-Go years, how there was not a single seat that was purchased on the New York Stock Exchange over like a 30-year period, something like that. And in 1954, when stocks were finally coming back. to the 1929 highs, Benjamin Graham was called in by Congress to talk about what was going on and explained that is the market going to fall apart again?

Right. Nobody cared. Yeah, stocks for the long run wasn't a thing back then and no one even knew it. So I looked at, so let's say in the financial crisis in 2008, you decided after Lehman went under, you go, all right, this is it. Stocks are down 20% or so. I'm going to buy. That was middle of September 2008.

Things got way worse. stocks fell like another 40% by the time they bought in March 2009. So you bought after some carnage. Stocks were down 20%, 25%. And then they got killed from there. Even with the 30% decline right now, you're up 345% on that money right now. Obviously, could get worse. So let's say 1987 is the other one. Let's say stocks had already fallen, a lot of people don't realize stocks had fallen 16% leading up to Black Monday, 1987 and then fell 21% on that Monday. So let's say the Friday, after stocks were down 16%, you decided to go on and buy and put your cash to work. Stocks immediately fell 21%. And they actually didn't bottom until December. So even though that happened in October, they bought them in December.

10 years later, you're up 400%. Obviously, that coincided with the 90s boom. What about the depression? Worse case scenario. So you back up the truck after stocks had fallen 60% by 1931. So two years after it started in September, 1929, you're down 60%, and you're the only person alive with money left. And you say, I'm going to go all in. From that point, stocks fell an additional 65% before bottoming. Oh, my God. The crazy thing is, one year later, you were down less than 10% because there was back-to-back months in 1932 that were up 38%. So July and August of 1932, we're up 38% a piece. In five years, you're up 120% in that money. So it really depends how much you can live through a loss. So you don't want to be jumping in and then jumping out

again if they go down further because they certainly could go down further. So that's the point with buying early. Here's the question. Would you rather buy in too early or buy in too late? What would you feel more comfortable doing? So would you rather buy in with stocks falling further? Or would you rather be one of those people that misses the bottom and then tries to buy late? or my point is, I think a lot of people who try to buy late are going to be waiting for, well, this is a dead cat balance. And a lot of people will never get in after we have the recovery because they'll think it's not going to last.

I completely agree. I think that buying after the bottom is extraordinarily difficult because you just think it's going to roll over again. So in a perfect world, I'd much rather buy after the bottom, like obviously, right? I'd rather buy after we're 30% off the lows than buy and fall another 30%. So I'd rather be a late buyer than an early buyer, but we don't get that choice. You talked about the other side. You had a post where you said, okay, let's say you sold last week and now stocks have bounced, what, at this point, 12 or 15 percent? And let's say you're back. You initially missed a 10 percent down swing or whatever and you feel pretty good. So you felt great. Yeah. Pat yourself in the back. Now stocks have come back and you're back to the very same level you sold. What do you do? You basically are back to even. So that's why we always say like going all in or all out. You could be a hero and you could look like a genius if you did that. But if you make the wrong move in the marketplace head games with you, let's say it goes up even

more and then we have another leg down. The head games that you can play with yourself from this is just, it's too much to think about. Let's say that last week you were really, really scared as we all were two weeks ago, on the 12th, which is where we're back to. So let's say that instead of going all out, let's say you were 60-40 and you went to 50-50 or even 40-60 because you were really panicked. And now we're back to where you made the shift. Do you think you're mad? Of course you're not mad. You're relieved. You miss some volatility. Yeah. You're relieved that stock stopped falling. So it's all good. But if you went to 100% cash, what do you do now? What do you do now? Because, and it's not to dunk because stocks can easily roll over. I'm just saying like, okay, so let's say,

you know what? That was wrong. I panicked. I'm going to buy back in. But I'm going to even be smart about this. I'm going to have a lower amount of money in stocks. And then stocks roll over again. You're like, oh, man, I'm an idiot. Like, do you go to sell again? Yeah, I think whatever you do, you have to have a best case and worst case. So let's say you think you're going to be prudent and you think stocks are going to fall 40 or 50 percent from the highs. And you say, I'm going to buy, and this is what I talked about a couple weeks ago. My theory is if they get to 40 percent, I'm putting some money in. If they get to 50, I'm putting even more money in. And let's say it doesn't get there, though. You have to have that other contingency plan of what if stocks

don't go that far. And they certainly could, but they might not. It's possible that the stock market, again, doesn't get as bad as the economy this time. What are you going to do in that situation where stocks don't go as low as you think they're going to? Are you going to sit in cash and wait the whole time, or are you going to have a contingency and put something to work slowly over time and then just dollar cost average normally? And imagine you're out. Do you hope that markets go lower? Isn't that just a repulsive idea to hope that things get worse? What's the Charlie Munger quote about gold? If you turn out to be right about the apocalypse, no one likes you anyway or something. That is a tough position to be in to root for stocks to go down.

All right. So let's talk about financially independent, retired early, the fire movement. What do you say here, Ben? I've had a bunch of people make some comments about it, and I think I've made a tweet or two. And someone on one of the guru people on the fire movement who said he saved a million dollars by age 30, he's telling people on CNBC that this movement is probably over. said, I think the whole idea of retirement really will disappear because of this. It's not going to be easy, even for people who have been saving up, but it's not going to be as attractive an idea. This grant, I can't pronounce his last name, Sabiator, millennial money founder.

Sabiator. Oh, he's the author of Financial Freedom book. I think he but that's okay, it's a tough one. Sorry. I will take the exact other side of this. Which is what? I think that, not for everybody. Of course, there's going to be some people that retired earlier that really couldn't. But I think that the people in the fire movement have had their personal finances in such good order that they can withstand this better than anyone because they're used to living a meager lifestyle. And this is just affirmation that the most important thing to survive this is your personal finances. You're investing whatever choices you're making, even if you're generating alpha, that's not going to save yourself. You need to have your personal financial

house and order. And that's exactly what the fire people do. So I'm optimistic that they're going to be, that they're going to weather this much better than the average person. Yes, the person who's been living a high life for a while and having to cut back, that's way more painful than the person who has already been living frugal. And those people know how to get through this. Again, maybe their assets won't last them 50 years in retirement like they thought. And they're going to have to continue to produce income somehow and maybe save more money because if they start taking out of their stock portfolio now, they're going to deplete it. You don't want to sell one Stocks are down, obviously. But yeah, the lifestyle thing, they've already got that figured out

and they can probably wait this thing out longer than anyone. So yeah, I agree that maybe some of these people are not going to be able to make it not working for the rest of their life, but maybe their blog traffic has gone up in the past month or so because of this. So I think these people are more prepared than anyone for this. All right, ready for some listener questions? Okay. Now that the Fed has dropped rates to zero, I'm looking at savings account alternatives. What do you think about investing in corporate or treasury bonds for my savings money? Well, with the 10-year yielding 0.88 percent, not much juice there to squeeze. I'm guessing a lot of people in the past few weeks have realized that savings account alternatives

are not the same thing as a savings account. Here's the best thing you get from a savings account. There's no volatility there. There's no interest rate risk. The only rate risk you have is that the Fed lowers rates and you earn less money. But there's no such thing as volatility in your holdings because of what's happening with interest rates. You're just going to be paid a lower yield. And obviously those yields are going to come down. I would imagine the Fed is at in a range of zero to point two five. I'm guessing most online savings accounts will be paying 40 or 50 basis points. But guess what? No, I don't think so. I think it's like 20. Is it down to 20? Okay, I saw a few at 40. But trying to chase some yield and improve on that 40,

like if you go from 40 to 1% for $10,000, how much more money you're going to make anyway. It's not like you're making that much more chasing that yield. And there's likely an enormous amount of risk. Yeah. So I think it's probably just not worth it for most people to chase yield in an account like that. All right. With rates lower to zero, doesn't it make sense to sell at least some of my long and midterm bond ETFs and put more money into stocks while they are still in the deep?

I think it's safe to expect that in five to 10 years stocks will have recovered. I'm not talking about timing the market, but more like shifting my retirement strategy for the middle term. Obviously, we can't give personal advice here, but I think that this general line of thinking makes sense. Yeah, bonds are going to give very little here. Stocks have more attractive return profile over the long term than they did a month ago. But obviously there's the caveat that stocks can go a lot lower and bonds are probably going to be relatively stable. So it's all about tradeoffs. This is one of the reasons why it's great to have your rebalancing set automatically to do it for you. So you don't even have to think about it. But it can also help to have these

bands around your waiting. So let's say you have an 80, 20 mix of stocks and bonds. And stocks have fallen 30 percent and bonds have been stable or risen a little bit. If you're outside of, let's say you have a band of 5 percent. Anytime my allocation gets more than 5 percent away, so when stocks get down to 75, I'm going to rebalance. Or when bonds get down to 17, and a half versus 20, whatever it is, putting some bands on that can make it easier where you just have these rules in place and you don't have to think about it and you just do it for you. So I think having any of those rules in place in advance can help. Obviously, there's a lot of people who don't and they're trying to figure out when the perfect time of rebalances. That's again

just like trying to nail the bottom. If you set your asset allocation, you did it for a reason. So I wouldn't try to overthink these things. This comes from Danny Favre on Twitter. Danny works TD Ameritrade. How do you respond if a client comes to you and says, with mortgage rates at 2.5%, why not take $100,000 equity out of the house and put it in stocks and assume the client's income earning potential is not market dependent? I would say that assuming your personal financial house is in tip top, flawless, bulletproof shape, then this makes sense.

But again, you need cash, you need the asset allocation right, you need no debt. Like, you need to be absolutely bulletproof. But yeah, I think that the market is going to give much better returns than 2.5%. This is going to sound totally irresponsible. But people, I wrote, here's my personal plan for the crash last week. And I said if we fall 50% of backing the truck up and people ask, well, how are you going to do that if you invest in stocks all the time? I'm considering doing this.

I don't believe you. I'm going through a refinance right now. My rate is like 2.8%. I have a decent amount of equity in my home. What is the point of leaving that equity in my house that's going to do nothing and I can spend nothing with it instead of putting that into a tax deferred retirement account and taking a chunk of that and doing that. So I am strongly considering this. I would not recommend other people do it, but this is something that I am strongly considering with rates so low and the stock so low. I think in 30 years or whatever, I don't think I would. Maybe it's dumb. My personal finances are pretty short up, I have a pretty high savings rate. I'm strongly considering doing this. If stocks fall 50% from the highs, I will likely take some equity out of my house and put it into the market. Are we talking weekly call options or what? Yeah, I'm going to trade the three-time levered bank stocks. Give me the downside of me doing that. Talk me off the ledge because I see, I already have a decent amount of equity in my home. I don't see what the point of is leaving in there with rates so low. Okay. I'll tell you what the

downside is. So when do you have to start paying that off? I'm doing a refinance, so I would do a cash out refinance. So I'm paying it off. I'm just taking out a bigger loan for my refinance. So I would be paying it off over the course of 15 or 30 years, however long I choose to do the refinance. Okay. So it wouldn't necessarily change your monthly. I'm not taking out a home equity line of credit. I would be taking money. I'd be cashing out through a refinance. So I'd be paying this off over the course of, I think we're going to do a 15 year mortgage. Okay. Here's a downside. We go into a depression and our income gets cut in half or turned down even worse and you need that money from your house to live and you don't have it anymore. Take out a second mortgage. What are the

chance of that happening? Yeah. I mean, I think it probably makes good sense. I mean, obviously there's risk involved like anything else, but there have been retirement studies that say that young people should borrow to buy stocks, which in a spreadsheet sounds like a really smart idea because over the long run, stocks do really well. But this is why it's so hard because these things happen and then you're screwed and if it was a home equity line of credit, the bank could technically call that back in from you. All right. Any recommendations for the week?

I know we just did a show two days ago, but we finished, this is us last night. It's the only show I watched on network television. And I thought it jumped the shark last year. I thought last year the season wasn't that great and I was ready to give up on it. This season was awesome. And the season finale was great. They had a nice little twist at the end. As far as, that's my only, that's my NBC show and it's the tier.

Dricker one kind of, and I don't know how much longer it's going to go, but I think four seasons in. How great was Kerb this season? Curb was amazing. The last one was just okay, although I loved the spite store with Jonah Hill and Sean Penn at the beginning of the finale. I thought that was awesome. And Milakunis. And Milakunis.

Yes. They didn't ask what she did with her stocks. Is she still in? I wonder if she rotated back into cash before this happened. She's got pretty good timing. Yeah. I'm going to double down on the Tiger King. Okay, I started it.

I watched the first two episodes. I know it gets weirder, but honestly, I don't know if I can even handle it. Like, it's so weird. I just, everyone loves it. I'm just, it's just too weird for me. It's too weird. It just turns out that you think the real lunatics, and they are, are the two tiger guys, Joe Exotic and the other guy.

But it turns out that the real maniac, and they, again, they all are, is the one that you thought was like the Good Samaritan, Carol Baskin. Right. And I do the animal people, obviously, that makes sense that they're all nuts. But I don't know. I just don't know if I have time. These documentaries are so weird. I'm going to make a prediction. We're going to have a scandal from a Netflix doc in the future where half of it was made up. And it's going to be reality TV. How's that? I was just about to go there. It's really hard to get an accurate picture of what's going on because watching the show, they make it look like Carol Baskin. spoilers. Actually, I won't spoil it. They make her look a certain way. But I don't know if that's true. I don't know if that's just being shot a certain way and they completely are smearing her name. Like, I'm not like doing research outside of what I'm watching on TV. You know what I mean? You don't know who's making the documentary, how they're spinning it. So a lot of these stories, you never know. It is probably a good way to get your mind off of things because you just go, man, things are bad, but they're not that bad. Not as bad as them. So I guess I can see that. Some of these docs are too weird for me. That's all I.

got. All right. Animal Spiritspod at gmail.com. Again, check out coronavirus daily briefing wherever you get your podcast. And we will see you next Wednesday.